Except for the special BT system business entities, VAT is levied according to the value added to the service or goods up to the point of each sale. Regulated by the VAT and Non-VAT Law, the VAT rate shall be no less than 5% and no more than 10%. Currently the rate is 5%.
Zero-rating is applied to the following:
1. Goods for exports
2. Services related to exports
3. Services supplied in Taiwan, but utilized in foreign countries. A business entity is eligible to apply for 0% VAT if it provides services to a foreign company which utilizes the services abroad.
4. The sale of machinery and equipment, materials, supplies, fuel and unfinished goods to the bonded areas.
5. International transportation.
6. Vessels and aircraft used in international transportation and deep sea fishing boats.
7. Sales of goods and maintenance services to vessels and aircraft used for international transportation and deep sea fishing boats.
Also, under the current regulation, 32 items are exempt from VAT. When selling VAT-exempt goods or services, the seller will not collect VAT from the buyer. In addition, the seller is not eligible to apply for the credit of any VAT paid on purchases relating to such goods or services. A seller can forfeit the VAT exemption if the exemption is unfavorable to the seller. The seller may apply to the MOF to forfeit the VAT exemption. Once the application is approved by the MOF, no change will be allowed for 3 years.
The following are some items exempt from VAT:
1. Sales of land.
2. Bonds issued by all levels of government, and securities that have been imposed securities transaction tax in accordance with the law.
3. Sales of weapons, warships, aircrafts, tanks and reconnaissance communication equipment for military use to defense agencies.
4. Gold bars, gold bullions, gold foil, gold coins, and gold ornaments, but the processing fees are not exempt.
5. Research services supplied by scientific or technological institutions which are established under the approval of government.
6. Sale amounts of operating financial derivative products, corporate bonds, financial bonds, New Taiwan Dollar interbank call loans and foreign currency call loans. However, commissions and service charges of these products are not exempt.
7. Insurance policies accepted by insurance companies for coverage promoted by the government covering military, government and educational entities and their dependents; laborers; students; farmers; fishermen; exports; compulsory automobile third party liability insurance; reinsurance premiums paid out by insurance companies from premiums they have received; life insurance policy reserves; annuity insurance reserves and health insurance policy reserves, provided, however, incomes, other benefits and return of policy reserves received on termination of life insurance, annuity insurance and health insurance are not exempt.
In the following situations, the amount of overpaid business tax claimed by a business entity shall be refunded after verification by the tax office:
1. The overpaid VAT is on goods or services subject to 0% VAT.
2. The overpaid VAT is on fixed assets obtained.
3. The overpaid VAT is by a business entity that has submitted an application for cancellation of business registration due to merger, business transfer; dissolution or cessation of business.
VAT Calculation
Output VAT - The output VAT is defined as the amount of VAT to be collected at the time of selling goods or services. The sales amount refers to all the considerations received from the sale of goods or services, including any expense reimbursements other than the selling price of goods or services sold.
Input VAT - The input VAT is defined as the VAT paid by a business entity at the time goods or services are purchased.
Creditable VAT - To qualify for creditable VAT, business entities permitted to deduct input VAT from output VAT shall maintain the following documentary evidence with their names, addresses, and business administration registration numbers on the documents:
1. GUI specifying VAT paid on purchases of goods and services.
2. GUI specifying amounts of VAT issued by the business entity itself under the
circumstances deemed as sales of goods or services.
3. Other documentary evidence specifying the amounts of business tax and approved
by the MOF.
Non-creditable VAT - In any of the following events, input VAT shall not be deducted from output VAT by a business entity:
1. 1. Where supporting documents with respect to the purchased goods or services were not obtained or properly maintained
2. The goods or services purchased are not for the use of principal and ancillary business operations. However, purchases made for the assistance of national defense construction, support of troop morale, and contribution to the government are not included.
3. Goods or services for community relations/entertainment purposes.
4. Goods or services rewarded to individual employees.
5. Passenger cars for personal use.
VAT credit - In the VAT system, the input VAT paid can be credited against the output VAT. When the input VAT is larger than the output VAT (resulting in overpaid VAT), the business entity will have VAT credit.
Returns
VAT returns should be filed bimonthly prior to the fifteenth day of the following period. The tax is due upon filing of return. The VAT filing date will be the fifteenth day of every odd month. For example, VAT for January and February should be paid and filed before March 15.
Business entities qualified for the 0% VAT rate may apply to the tax office for filing VAT returns on a monthly basis.
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